Kennedy v. Gibson

The opinion of the court was delivered by JOHNSTON, C. J. : The first contention is that, under" the averments of the petition, the action was barred by the statute of limitations, and that therefore -the demurrer should have been sustained. The note was dated September 1, 1892, and was payable September 1, 1897. According to the date fixed for maturity, the statute would not bar the note until September,. 1902, and this action was brought in May, 1900. The contention, however, is that maturity was accelerated by the stipulations as to the effect of default in Prepayment of interest. The default occurred on March 1, 1893, and it is claimed that the cause of action accrued at that time. The note provided that a default should mature the entire debt, at the option of the holder, while the provision in the mortgage was that a default made the whole^ debt due, regardless of an election by the holder. Which of these provisions-should control? In the absence of an option clause in the note, the stipulation in the mortgage' would — 617 — have operated to mature the whole debt upon a default, and the mortgagors could have taken advantage of the stipulation. (National Bank v. Peck, 8 Kan. 660.) The stipulation in the note as to default, however, conflicts with that of the mortgage, and, of necessity, the former controls. The note contains the obligations of the mortgagors, and the mortgage, concurrently executed, is an incident to and security for the note. The stipulation in the note must therefore prevail, and unless the holder exercised the option and elected to declare the whole debt due, the statute would not run earlier than the time originally fixed for the maturity of the note. (Hutchinson v. Benedict, 49 Kan. 545, 31 Pac. 147 ; Keys v. Lardner, 55 id. 331, 40 Pac. 644; Wilcox v. Eadie, 65 id. 459, 70 Pac. 338 ; York-Ritchie Co. v. Mitchell, 6 Kan. App. 317, 51 Pac. 57.) As the holder did not exercise the option to declare the whole debt due, the statute did not begin to run until September 1, 1897, and hence the bar was not complete when the action was brought. The sustaining of the demurrer to the defenses set up in the answer is also assigned as error. The effect of the allegations was that there was fraud in the inception of the note and mortgage, and the verified answer put in issue the averments as to the transfer of the paper. While the defenses were not clearly and tersely stated, they did set forth that the execution was obtained by false representations and fraud. In substance, it was averred that the makers were indebted to one Leighton, who had been represented by Waldo. At the request of Waldo, the Kennedys met him for the purpose of securing an extension of the Leighton debt. Waldo represented that he had authority from Leigh-ton to make the extension and they relied on his representations. When he presented a note and mortgage — 618 — for execution they noticed that it was made out in favor of Bessette and declined to execute them, as their purpose was to make papers in extension of the old note and mortgage held by Leighton. Waldo then said that Bessette was a partner of Leighton, was interested with him in the old note and mortgage, and that in dealing with him they were in fact dealing with Leighton. On those representations the note and -mortgage in question were executed, but the statements were all false and were fraudulently made, for the purpose of procuring the Kennedys to make the note and- mortgage in question. The .old notes and mortgage were not returned to them, nor were they released, nor was any money or other consideration given them for the notes in suit. Shortly after the notes were so fraudulently procured, the Kennedys learned that the representations of Waldo were wholly false; that Bessette was not connected with Leighton, but was connected with a bank in which the notes were executed, and, although present when executed, he did not reveal his identity. They at once went to Waldo and Bessette and challenged their fraudulent action, demanded the return of the note and mortgage, and warned them and all parties concerned that on account of the fraud and lack of consideration the note and mortgage were void and would not be paid by them. The averments are to the effect that the note and mortgage were obtained from them by deception and fraud, in the belief that they were extending an indebtedness already existing. This belief was induced by the representations that there was authority from the holder of the debt to extend t'he credit by the execution of the new note and mortgage. These representations were false ; there was no such authority; the old note and mortgage — 619 — were not surrendered or canceled and the makers received no consideration whatsoever. As the note was obtained by fraud, it devolved upon the holder to show that he received it bona fide, in the usual course of business, and under circumstances which created no presumption that he knew any facts which impeached its validity. (Brook v. Teague, 52 Kan. 119, 34 Pac. 347.) Having stated facts which, if proved, established fraud in the inception of the note and mortgage, the presumptions in favor of the holder’s right and title were overcome and a defense was made out. To meet such a defense, it will be incumbent on Gibson to show that he or some antecedent holder took the paper before maturity, in good faith, for value, and in the usual course of business. The plaintiff did not acquire the note and mortgage until 1899, long after maturity. Then, again, the allegations of the transfer of the paper before maturity were denied, and there was ah averment that all of the interested parties were warned of the invalidity of the note and mortgage, and that other acts were done tending to show an absence of negligence by the Kennedys. Whatever the facts may be as developed by the testimony, the averments set up in the answer as defenses are sufficient, we think, to repel the demurrer. The other objections are not material and do not require special attention; but for the errors mentioned the judgment will be reversed and the cause remanded for further proceedings. All the Justices concurring.